loader2
Partner With Us NRI

Different Types Of Business Loans

Introduction - What is a Business Loan?

A business loan is a type of secured or unsecured commercial loan. It is offered to entities by lending institutions for business purposes.

Why do you need a Business Loan?

While operating any business, whether big or small, you need funds to carry out its day-to-day operations. Your business operations will range from leasing a shop, purchasing raw materials to buying a factory or machinery equipment. All of this involves funding. Your business needs financing at every phase. It involves huge capital expenditure. So how do you get through it? Availing of a business loanwill help reduce the financial strain you’ve been carrying towards acquiring capital. It can help you fund your business in an easy, quick manner.

Types of business loans: What are they?

Based on the nature of your business, you will require funds for its growth and expansion. Your capital needs vary depending on the nature and size of your business activities—that is, whether it is a big or small industry or, whether it is capital or labor-intensive, or whether it is in the stages of inception or expansion.

These factors play a crucial role in ascertaining the kind of business loan you need. You must select the type of business loan that’s best suitable for you. Let us have a look at some of the types of commercial loans. These are:

  • Working Capital Loan:It is a type of advance where businesses can use the working capital loan to run their day-to-day or short-term operations. With this type of loan, you can cover your daily business expenses such as purchasing raw materials, investing in machines, looking after inventory costs and payroll. It is ideal for Small and Medium Enterprises (SMEs) as they need funds to manage their daily expenses.

  • Term Loan (Short & Long term): Term loans are helpful if you want to use them towards capital expansion. They can be short-term or long-term. Depending on your business requirements and the nature of the loan .i.e. secured or unsecured, the tenure of term loans can extend from 1 year to 10 or 20 years. Term loans can be secured or unsecured.

  • Overdraft Loan: It is a type of facility offered by the bank—where the borrower can withdraw cash from the account within the sanctioned limit. This limit is revised every year and depends on factors such as the borrower’s credit and repayment history, its relationship with the bank, and its cash flows. In an overdraft facility, your bank will charge you interest only the amount you’ve utilized.

  • Equipment Finance: It is a type of loan used to purchase new equipment for large-scale enterprises. It is suitable if your business is involved in manufacturing—as this entails a high loan to fund machinery that’s expensive.

  • Letter of Credit: It is a document issued by the bank which guarantees full and timely payment to the seller. In case of non-payment, the bank makes payment to the seller on behalf of the buyer.

  • Point-of-Sale Loans: Point-of-Sale loan, also referred to as Merchant Cash Advance, is a type of lending offered by business owners to their suppliers. It is a type of funding option for a small business, where they receive an advance against their everyday sales. Thus, you can repay the loan based on your day-to-day sales.

Conclusion:

You must fund your business operations to keep them ongoing. It is essential is that you select the type of loan that is suitable for your business. It helps in maintaining your cash flows and covers your day-to-day expenses.

Disclaimer - ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

Most Popular

  • 21 Jun 2022
  • ICICI Securities

Should you invest in Mutual Funds SIPs or FDs?

Choosing between a Systematic Investment Plan and a Fixed Deposit comes down to risk appetite and investment goal. Nevertheless, mutual fund SIP investments can be beneficial in many ways. This article will outline the difference between the two investment instruments and which one you should choose.

  • 21 Jun 2022
  • ICICI Securities

How to choose the best SIP investment?

Systematic Investment Plans (SIPs) are an option to make regular investments in mutual funds. Before heading to make an investment in SIP mutual funds, consider these factors to find the one that perfectly justifies your financial goals. 

  • 21 Jun 2022
  • ICICI Securities

How does long term capital gains tax impact you?

Certain assets, such as real estate and shares, attract long term capital gains (LTCG) tax. Here’s what you need to know about LTCG tax and how it can impact your finances.

  • 21 Jun 2022
  • ICICI Securities

Choosing between stock market and fixed deposit investments

Choosing the right investment option is critical for meeting personal financial goals. This article will highlight the difference between choosing stock market investments and fixed deposits—the aspects to consider, the risk-return profile, and what would fit into your portfolio.

  • 21 Jun 2022
  • ICICI Securities

Are Small-Cap funds good investments?

The best small-cap funds outperformed large-cap and mid-cap mutual funds last year. Now that the markets are turning bearish, is it a good idea to invest in small-cap mutual funds? Here’s an overview of these equity mutual funds to help you make an informed decision.

  • 17 Jun 2022
  • ICICI Securities

What Does the US Fed's Biggest Rate Hike Mean?

On 15th June 2022, the US Federal Reserve hiked interest rates by 75 basis points, the biggest hike since 1994. Why did it do so? What are its implications for India? Read on to find out more.

  • 15 Jun 2022
  • ICICI Securities

What is ESG investing and everything you need to know about it

In the last few years, since climate awareness and social justice have piqued people’s interest worldwide, ESG investment has increased. This article talks about ESG investing and the options available for ESG investment in India.

  • 15 Jun 2022
  • ICICI Securities

The Latest ESG Reporting and Framework in India

In May 2021, India introduced a new environment, social, and governance (ESG) guideline for the top 1,000 listed companies by market capitalisation. The Business Responsibility and Sustainability Report (BRSR) will be mandatory for these companies from FY 2022-23. Here’s what you should know about this ESG guideline.

  • 15 Jun 2022
  • ICICI Securities

Difference Between ESG and SRI Investing

When it comes to value investing, the two terms—ESG investing and SRI investing—are often confused. However, ESG investing strategies are different from SRI investing strategies. Read more to find out what sets the two apart and how you can decide which approach to adopt.

  • 14 Jun 2022
  • ICICI Securities

Four ways to ensure you leave your children a financial legacy

It is a moment of pride for parents to see their children earn their own money and lead a life with dignity. No words can express the joy to see your children grow, but how do you touch their life when you are gone? You can do that by leaving behind a financial legacy for your children to inherit. Here are four ways you can align your financial plan such that you leave behind something for your children.